Clean New vehicle and Energy Tax Credits!
$7,500 Tax Credit? Sign Me Up!
Clean new vehicle and energy tax credits seems to be picking up steam. Lets take a moment and exhale. There is a road map to get there (compliments of the IRS) but the hoops may be exhausting. The first place to start is your budget, will the deal make sense financially? You need to know your annual income structure to begin with. Referred to as “Modified Adjusted Gross Income” which is part of your AGI, here is the IRS definition of both. Here is the simpler version.
Your modified adjusted gross income (AGI) may not exceed:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
Example (courtesy of IRS)
Adjusted Gross Income (AGI)=gross income–adjustments
Gross Income=Total income. Income from all sources of income.
Adjustments=Expenses the taxpayer paid for with income that the government deems should not be taxed.
Bob’s Income:
- $50,000 salary/wages
- $12,000 in rental income
- $8,500 wages earned as a part-time Uber driver
- $500 from interest from bonds
Gross Income=$71,000
Adjustments from his gross income:
- $250 in educator expenses
- $2,500 in student loan interest
Adjustments=$2,750
Subtracting the Adjustments ($2750) from the Total Income ($71,000), Bob’s AGI is $68,250.
So far So Good?.. Great Lets keep going!
Clean new vehicle and energy tax credits qualification
First they need to meet the initial two “clean” criteria. The clean new vehicle and energy tax credits requirements will set the tone of vehicle choice in other words Make & Model. There are a total of two requirements that must be met to receive the $7,500 tax credit. They both have a value of $3,750. Lucky for you they’re listed below with the definition.
To meet the critical mineral requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the critical minerals contained in the battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement, or be recycled in North America. Read here for more information from the Treasury Dept.
To meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components must be manufactured or assembled in North America. Read here for more information from the Treasury Dept.
If the vehicle you’re deciding on fails to meet either of these requirements it will not qualify adversely if it qualifies for one (or the other) lets take a look at the additional requirements to qualify under the clean new vehicle and energy tax credits.
Income ⇒ Battery ⇒ Minerals ⇒ Oh My! Now What?
There is always more but it will get easier or maybe less confusing, or not. We have covered the basics needed to make an informed decision so now lets go 3rd level and learn more about the clean new vehicle and energy tax credits.
To qualify clean as a new vehicle and energy tax credits vehicle, it must:
- Have a battery capacity of at least 7 kilowatt hours
- Have a gross vehicle weight rating of less than 14,000 pounds
- Be made by a qualified manufacturer.
- FCVs do not need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.
- Undergo final assembly here in North America
- Meet critical mineral and battery component requirements (as of April 18, 2023).
The sale qualifies only if:
- You buy the vehicle new
- The seller reports required information to you at the time of sale and to the IRS.
- Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.
In addition, the vehicle’s manufacturer suggested retail price (MSRP) can’t exceed:
- $80,000 for vans, sport utility vehicles and pickup trucks
- $55,000 for other vehicles
MSRP is the retail price of the automobile suggested by the manufacturer, including manufacturer installed options, accessories and trim but excluding destination fees. It isn’t necessarily the price you pay.
You can find your vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”) and VIN on the vehicle’s window sticker.
The contents in this post is a collective of information found on the IRS website. It is recommended to advise a tax advisor and also review the IRS website under the heading Credits for new clean vehicles purchased in 2023 or after. Happy Shopping!
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